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How to choose stocks for intraday trading?

Intraday trading is the simplest form of stock trading. As the name suggests, it’s about buying and selling stocks “within the day”. Changes in price points within the day are important to short-term traders, the prerogative not being “investment”, but quick money – the margin. Intraday stock pickings have to be robust, timely and decisive. The basic requirement for Intraday Trading is a substantial risk-taking attitude. Beginners are generally cautioned away from intraday trading as one must be able to base his/her decisions on foundational research and logical analysis, something more experienced investors have.

Key Points

  • Changes in price points within the day are important for short-term traders, the prerogative not being “investment”, but quick money – the margin.
  • Price volatility, shifting socio-economic factors, firm specific indicators (both present and historic), sector competition etc. all have to be kept in mind before decisions are made.
  • To involve yourself in intraday trading, you must have a handle on market conditions, policy changes, markers within the company or industry that support your decision, basic indicators such as DMA (Daily Moving Averages), the RSI (Relative Strength Index) etc.

Intraday trading is as tedious as it is risky. Price volatility, shifting socio-economic factors, firm specific indicators (both present and historic), sector competition etc. all have to be kept in mind before decisions are made.

Example. A purchases Bharati Airtel at Rs. 408 with the upcoming merger with TATA Teleservices as an indicator for an upward move to Rs. 420, as the market closes. But the JIO announcement – for a new handheld device– depreciates investor confidence in Airtel, and the price drops to Rs. 400; a loss of Rs. 8 per share.

Dos & Don’ts

Intraday trading is a matter of balancing scale and cost. But it also is a matter of experience and analysis. The risk requires that an intraday trader, or someone who aspires to make such a decision, follow some basic guidelines –

  • Investment attitudes should come from two places – where losses are to be expected (you should be able to afford losses) or from a place of caution.
  • Before entering a position, decide your buy price, your target price and stop-loss. Buy too close to the curve, your profits shorten. Sell much before the curve… the same.
  • No cement. No investment. Intraday movements should not make you decide to stay too long. You are here for one quick fight up the curve.
  • Do not (or one is advised not to) bet against the market. The experts can guess. No one knows.
  • Research and analysis are your closest friends. To involve yourself in intraday trading, you must have a handle on market conditions, policy changes, markers within the company or industry that support your decision, basic indicators such as DMA (Daily Moving Averages), the RSI (Relative Strength Index) etc.
  • Do not “jump in.” Monitor the stock in question and purchase stocks in consequential scrips.
  • Be happy with what you make. But make the most of it.

Stock selection tips for an intraday trade

Intraday trading is either a matter of luck, or of research and concrete decision making. If you fall into the latter category, you will have to decide on a few basic parameters for what the stock you plan to dive into, looks like. These parameters are –

  • The liquidity of the stock; trade in stocks that are highly liquid, given their high trading volumes, and minimum effect on prices.
  • Stay away from highly volatile stocks – either by individual investment or by sector.
  • Don’t fight the market trend (unless the indicators say otherwise).
  • Bet well, or scalp trade. Be content and aim for small margins that remain profitable.
Wrapping Up

  • Intraday Trading - or the act of closing trades on the same day, is like bungee jumping – utterly exciting and at times dangerous.
  • Before you begin, beat that apprehension with concrete evidence and research.
  • Enter a position with the right frame of mind, and exit in as timely manner as possible.
  • Make it simple and be aware of the risks you take.
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